...Interest Rate Risk Dr HK Pradhan XLRI Jamshedpur Hull Ch 7 Fabozzi chapters on duration & Convexity, Ch-7, Convexity Stochastic Process notes Session Objectives j Valuation of fixed income securities Risks in fixed income securities Traditional measures of risk – (we know PVBP, duration and convexity, M-Square) M Square) VaR based risk measures Interest rate volatility calculations Portfolio risk & Cash flows mapping issues Var for Interest Rate Derivatives Interest rate risk and Bond portfolio management Profile of Interest Rate Markets, Instruments & Institutions Bond Price P 1 y C1 1 1 y C2 2 1 y Ct C3 3 1 y n Cn price Sum of the present values of each cashflows p P n t 1 1 y t M 1 y n yield price < par (discount bond) price = par (par bond) price > par (premium bond) Concept of Accrued Interest p When you buy a bond between coupon dates, you pay the seller: Clean Price plus the Accrued Interest – pro-rated share of the fi coupon: i d h f h first interest d does not compound b d between coupon payment dates. LD Days Accrued Interest Total T from last Coupon between Coupon Date Dates Days ND (Coupon) Dirty Price Clean price Accrued Interest Accrued Interest Face * C T LD * 2 ND LD Bond Valuation Value of a bond is the present value of future cashflows, so...
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...California Debt and Investment Advisory Commission Duration Basics Introduction Duration is a term used by fixed-income investors, financial advisors, and investment advisors. It is an important measure for investors to consider, as bonds with higher durations (given equal credit, inflation and reinvestment risk) may have greater price volatility than bonds with lower durations. It is an important tool in structuring and managing a fixed-income portfolio based on selected investment objectives. Investment theory tells us that the value of a fixed-income investment is the sum of all of its cash flows discounted at an interest rate that reflects the inherent investment risk. In addition, due to the time value of money, it assumes that cash flows returned earlier are worth more than cash flows returned later. In its most basic form, duration measures the weighted average of the present value of the cash flows of a fixed-income investment. All of the components of a bond—price, coupon, maturity, and interest rates—are used in the calculation of its duration. Although a bond’s price is dependent on many variables apart from duration, duration can be used to determine how the bond’s price may react to changes in interest rates. This issue brief will provide the following information: < A basic overview of bond math and the components of a bond that will affect its volatility. < The different types of duration and how they are calculated. < Why duration is an important...
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...行、农业银行、上海银行、太平洋保险、平安证券、富国基金等。 主编出版：《固定收益证券定价理论》、《财务报表分析技术》、《公司财务》、《衍生产品定 价理论》、《商业银行管理学》多本金融教材，备受金融学习者与从业人员好评。 新浪微博：汤震宇CFA_金程教育 联系方式： 电话：021－33926711 2-156 邮箱：training@gfedu.net 100% Contribution Breeds Professionalism 前导课程大纲 CFA一级框架结构 金 金程服务平台及百题分析报告 务 台 析 计算器使用 财务前导 3-156 100% Contribution Breeds Professionalism CFA 考试知识点及其比重 TOPIC AREA LEVELⅠ LEVELⅡ LEVEL Ⅲ Ethical and Professional Standards (total) 15 10 10 Quantitative Methods 12 5-10 0 Economics 10 5-10 0 Financial St t Fi i l Statement A l i t Analysis 20 15-25 15 25 0 Corporate Finance 8 5-15 0 Investment Tools (total) 50 30 60 30-60 0 Analysis of Equity Investments 10 20-30 5--15 Analysis of Fixed Income Investments 12 5-15 10--20 Analysis of Derivatives 5 5-15 5--15 Analysis of Alternative Investments 3 5-15 5--15 Asset Valuation (total) 30 35-75 35--45 Portfolio Management (total) 5 5-15 45--55 100 100 100 TOTAL 4-156 100% Contribution Breeds Professionalism 知识框架分析——Ethics 知识框架分析——Ethics Code of Ethics Integrity g y Credit ...
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...Chapter 4 – Bond Price Volatility Extra Questions 1. Be sure you understand all the relationships shown in Exhibit 4-11 2. The price of a bond can be written as either as the sum of series of discounted CFs (Equation 4.1, page 63) or as the sum of the PV of an annuity and the discounted maturity value (Equation 4.9, page 67). Note that the PV of an annuity formula used in Equation 4.9 is derived from the difference between a perpetuity starting at time zero and a perpetuity starting at time n. The difference is an annuity starting at time 0 and ending at time n. Equation 4.3 is the first derivative of price w.r.t. yield (∂P/∂y) using equation 4.1. The numerator of equation 4.10 is first derivative of the price w.r.t. yield using equation 4.9. Consider either equation 4.3 or the numerator of 4.9. Determine only the sign of following second derivative and mixed partial derivatives: * ∂2P/∂y2 * ∂2P/∂y∂C * ∂2P/∂y∂n (a) Does duration increase or decrease as the initial yield increases?(decrease) (b) Does duration increase or decrease as the coupon increases?(decrease) (c) Does duration increase or decrease as the maturity increases?(increase) 3. (This is questions 2 and 4 from the text.) Consider semi-annual bonds A and B. | Bond A | Bond B | Coupon | 8% | 9% | Yield to maturity | 8% | 8% | Maturity (years) | 2 | 5 | Par | $100.00 | $100.00 | Price | $100.00 | $104.055 | Produce an Excel...
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...Chapter 09 - Interest Rate Risk II Chapter Nine Interest Rate Risk II Chapter Outline Solutions for End-of-Chapter Questions and Problems 1. What is the difference between book value accounting and market value accounting? How do interest rate changes affect the value of bank assets and liabilities under the two methods? What is marking to market? Book value accounting reports assets and liabilities at the original issue values. Market value accounting reports assets and liabilities at their current market values. Current market values may be different from book values because they reflect current market conditions, such as current interest rates. FIs generally report their balance sheets using book value accounting methods. This is a problem if an asset or liability has to be liquidated immediately. If the asset or liability is held until maturity, then the reporting of book values does not pose a problem. For an FI, a major factor affecting asset and liability values is interest rate changes. If interest rates increase, the value of both loans (assets) and deposits and debt (liabilities) fall. If assets and liabilities are held until maturity, it does not affect the book valuation of the FI. However, if deposits or loans have to be refinanced, then market value accounting presents a better picture of the condition of the FI. The process by which changes in the economic value of assets and liabilities are accounted is called marking to market. The changes can be beneficial...
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...Bond Valuation By Anuj Joshi Note 1 Bond Valuation Fixed income paying securities. 1. Theoretical price or value of bond depends upon. i. Coupon Payment : Fixed amount of interest to be received after prescribed frequency. ii. Maturity Value [Unless otherwise given is exam, we should take face value] iii. Discount Rate : It should always be market interest rate 2. What is market interest rate Market interest rate is derived from comparable listed bond. The comparison is based on risk and life of the bond. E.g. If we are valuing a bond which is unlisted and have 5 years of life, then we should look for a bond which is similar in risk profile (i.e. same credit rating)and having similar life. The YTM (Yield to Maturity) of listed bond is called market interest rate The YTM of a bond is nothing but IRR of the bond. 3. Value of a bond = PV of Coupon Amount + PV of Maturity Value [Remember CF and discount rate are before tax] Concept Point: i. Coupon rate is a historical rate and should never be used as a discount rate. In exam, if no other information is available, then only we should assume coupon rate of interest as market rate of interest. ii. Remember, Cost of Capital or Discount Rate is a future concept and it represents opportunity cost on the date of valuation. iii. YTM of a similar bond (i.e. current market interest rate) is the appropriate discount rate for bond valuation. How to value a bond which pays interest at a frequency lower than annually (e...
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...Character analysis The characters I have chosen for my character analysis are Vernon and Petunia Dursley. I know you only need to pick one character, but I didn’t feel right just picking one or the other. For that simple fact that they feed off each other’s fixed mindset’s. Which is one of the things I will talk about in my essay. However, before we get to that I will tell you a little about the characters individually. I will start by talking about the characteristics of each then to tie it all together I will talk about both together. I will do this while providing examples from not just Harry Potter and the Sorcerer’s Stone By: J.K. Roweling but Carol Dweck’s Mindset the New Psychology of Success. We will start off with Vernon, the first...
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...Dweck Vs Gladwell Mind-Sets and Equitable Education By: Carol Dweck and The Matthew Effect Outliers By: Malcom Gladwell are texts that have two different meanings but they argue the same theme of success. The general idea of Mindset is that an individual can reach success if their mind is right. Dweck beliefs impact student’s motivation to learn and their willingness to expand the effort necessary to succeed. The general idea of Outliers is success occurs to those under special circumstances. Gladwell points out that there is something profoundly wrong with the way we make sense of success. Dweck and Gladwell both analysis how the students are being educated. Although their arguments appear contradictory Dweck and Gladwell texts both argue that peoples belief determine success. In the story Mindset Dweck believes that educators should to incite change within the school system. She also argues that success is a product of effort. Dweck identifies two sets of principles; a fixed mindset and a growth mindset. Dweck points out the change in grades from the beginning of...
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...“I Am Sam” Character Analysis Part 2: Autism Spectrum Disorder (ASD) is a mental disorder. People with Autism usually have communication deficits such as inappropriate responses in conversation or difficulty interacting with people their own age. People diagnosed with ASD also tend to be over dependent on routines and are sensitive to changes around them in the environment. Sam in the movie, “I Am Sam,” is shown to have ASD. He is shown throughout the movie having trouble communication with others, especially those around his own age. When Sam hosts a birthday party for his daughter Lucy, he is seen to be dressed up as a child with a party hat and interacts well with the children. During the many conversations Sam is involved in he is seen to stutter and always get off track. Sam is also shown to not realize what personal space is. In one scene when the lawyer is having a meeting with a couple the woman starts crying. In reaction to this Sam enters the room without knocking and starts to hug the woman. In the movie it is obvious that Sam shows many signs of having Autism. Part 3: Watching this movie has taught me a lot about intelligence. This movie has taught me that intelligence is shown in a variety of ways. While some people may have the brainpower to solve complex mathematical problems other people show a different form of intelligence that is unique to them. This is shown through the movie’s main character, Sam. Sam is intelligent in his own way, this is shown through...
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...To: Carl Rausch From: Sukhada Kulkarni RE: Release of Oxyglobin Date: October 30, 2013 The intent of this document is to provide suggestion for the timeline to release Oxyglobin. I would recommend releasing Oxyglobin to the market as soon as possible. Situation Analysis: There has been a debate if Oxyglobin release should be delayed by two years as it might jeopardize the sales of Hemopure. The concern here is that the estimated price of Oxyglobin ($150 per unit) might not allow Hemopure to be released at a higher estimated price as $600 per unit. As per my analysis this should not be a major concern as the advantages of releasing outweighs this concern. Here are the reasons why Oxyglobin should be released soon in the market: * As FDA approval takes time, being the first player in the market will give us an edge over the others and we will get an opportunity to establish Biopure. The possibility of success of Oxyglobin will become a platform for Hemopure to use the brand image already built. * The competitors Baxter Internationals and Northfield Laboratories are expected to release their products for human blood substitute at a price $600 to $800 per unit. The price of Hemopure should be compared against other human blood substitute as opposed to animal blood substitute. * As we do not have prior experience of going into market, this will be a good opportunity to experiment and learn before releasing Hemopure. It will also help us to form contacts with distribution...
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...development prospects enabling them to establish differentiated instructional strategies that give all students equal access and opportunities to learn. Teacher leaders have several roles. To begin with, as lifelong learners these leaders “foster a collaborative culture to support educator development and student learning” (Teachers as leaders, 2011). In other words, teacher leaders are dedicated to improving educational outcomes for students, expanding the professional communities that they work in and creating positive culture. Positive school culture is vital to both students and staff. Roby (2011) offers that “Teacher leaders not only have the ability to shape the culture of the workplace, but if they are operating from a moral mindset, an obligation to do so is imminent” (p. 782). Furthermore, teacher leaders are willing to take risks, effectively communicate, and express their ideas and are heavily involved in the school decision-making process. One idea I have expressed is the need for professional development on culturally relevant education as the majority of students at my school site are students of color....
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...caseinterview.com Why I’m Doing This • The first time I did this… • www.kidpower.org Examples o 7 year old girl took class, one year later stopped a man who was trying to molest her at the zoo. o Teenage girl took class, 2 years later got tackled to the ground by kidnaper, fought him off and escaped o 10 year old took class, 13 years later, walking in the woods with an old boy friend, former employee, baseball bat, she took him out My request: IF you find today useful, then make a $50 donation and keep a child safe for life Cost of MBA to Get Interview: Cost to Ace Interview: $150,000 50 Conclusion: It’s a darn good deal © Victor Cheng Page 3 www.caseinterview.com Agenda 1. Case Interview Basics 2. Case Interviewer Mindset & Criteria 3. How to Open, Analyze & Close a Business Case 4. Demonstration of Common Cases & Frameworks 5. How to Practice Case Interview Skills 6. Final Tips + Q&A © Victor Cheng Page 4...
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...MANAGERIAL RESPONSE TO THREATS Threat of new entrants Barriers to entry: It is very common that the existing company in a industry will set the barrier to the new entrants. Because these new entrants might become the strong potential competitors in the future and take away large profit from the existing company. For these new entrants, they will carry out pretty attractive competition and use better financial strength to seize current and potential market. These moves will lower the benefits of existing business and the return of investment. To prevent this situation happen, Coca-Cola will set different barriers to discourage the potential entrants. I will discuss other enter barriers. Product differentiation One of the most important factors to determine whether a business can be successful is whether they have the compared advantages. It is very important to use the differentiation strategy to make your products known by the customers. Products that easy to remember and recognize by the customers are different from others. This difference can be the service of the company, the high quality, the name of brand. All of these characteristics will set up the customers loyalty in the market. Under the advantage of differentiation strategy, even though the new entrants maybe try their best to attract the customers with lower prices or other things, they may still suffer a loss in profit because the loyalty of the customers. Capital requirement Whenever and wherever people decide...
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...the industry leader in terms of operations and prestige, the sales figures have shown that brand loyalty is eroding in favor of similar products at lower costs. Additionally, an entire department and its facilities are dedicated to the production of this item alone and its resources cannot be leveraged in other production areas, placing further strain on the importance of this product’s performance in the market. While one of Lille Tissages’ strengths is its reputation in the industry, post price-increase sales figures reflect the growing weakness of their once competitive advantage. The company is currently considering reducing the sales price of Item 345 in an effort to bolster sales and profitability to cover both existing and future fixed costs. This would be an aggressive option for various reasons: (1) lower contribution margin per unit sold, (2) competitors do not price their products until Lille Tissages has communicated theirs to the market, and (3) Lille Tissages does not adjust its yearly prices once they have been announced. Lille Tissages realizes that competition is fierce and changes may need to be considered in their pricing plan to remain competitive. While Lille Tissages is unable to leverage its competitors’ actions in its pricing plan, they are in an overall stronger financial position. Many of their competitors are smaller companies and are struggling in the current market and would greatly benefit from a price increase to stabilize their operations. Lille...
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...Introduction: When people purchase a cup of coffee in cafes, they also reserve the right to a seat for them to enjoy the coffee. In that sense, the money a consumer pays in the café is not only for the cup of coffee but also for the seat that he or she may or may not use. In economic terms, the coffee and the seat can be seen as complements. Consumers pay for an “invisible” bundle, which is composed by a cup of coffee and a seat. For café owners, their goal is to maximize their profit. Hence, the cost of the seat, which seems to be free, is actually contained in the coffee price. This is the traditional strategy of a café (“first strategy” in latter passage). However, a phenomenon is observed in China. With the increasing number of freeloaders, people who enjoy the seat without any purchase, private firms start to use a new strategy (“second strategy” in latter passage). They charge a sitting fee, which costs less than a typical cup of coffee, to those freeloaders. It is clear that such a policy is implemented to guarantee the café’s profit. As Singapore is also starting to observe an increasing trend of freeloaders, we are interested in which strategy is more suitable to be implemented by café. Research method & Survey: Our research is based on the hypothesis that the second strategy is going to be implemented in Singapore. Since coffee remains the same in the two strategies, we are going to draw our conclusion by analyzing a consumer’s willingness-to-pay for the...
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